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The Merchandise Inventory account balance is $60,000. A physical count of inventory reveals that the actual inventory balance is $35,000. Which of the following would be included in the adjusting entry? (Assume a perpetual inventory system.)

O a $35,000 credit to Merchandise Inventory
O a $60,000 debit to Cost of Goods Sold
O a $25,000 credit to Cost of Goods Sold
O a $25,000 credit to Merchandise Inventory.

User Alfishe
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Final answer:

To adjust for the discrepancy between recorded and actual inventory, a credit of $25,000 should be made to Merchandise Inventory in a perpetual inventory system.

Step-by-step explanation:

If the Merchandise Inventory account balance is $60,000 and a physical count reveals that the actual inventory balance is $35,000, the adjusting entry in a perpetual inventory system would include a $25,000 credit to Merchandise Inventory. This adjustment is necessary to align the book records with the physical count of inventory. The correct option is therefore a $25,000 credit to Merchandise Inventory. This adjustment decreases the Merchandise Inventory account balance on the balance sheet to reflect the actual inventory on hand and recognizes the loss or expense not previously recorded.

User WasimSafdar
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4 votes

Final answer:

The adjusting entry for inventory discrepancy under a perpetual inventory system when the Merchandise Inventory account balance is $60,000 but the physical count is $35,000 is a $25,000 credit to Merchandise Inventory.

Step-by-step explanation:

The correct answer to the question regarding the appropriate adjusting entry for inventory is: a $25,000 credit to Merchandise Inventory. A physical inventory count has revealed that the actual merchandise inventory balance is $35,000, whereas the account balance in the books was $60,000. To adjust the account balance to match the physical count, you would need to decrease the Merchandise Inventory by $25,000, which is the discrepancy amount calculated (book balance $60,000 - physical count $35,000). Therefore, the adjusting journal entry would be a debit to Cost of Goods Sold for $25,000 and a credit to Merchandise Inventory for the same amount, which correctly reflects the shrinkage or inventory loss of $25,000.

User EvilKittenLord
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